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Payment term

Published: 16 Mar 2009 18:55:19 PST
Author: KiTools
All the information about the T/T and L/C payment term

1-T/T payment in advance


T/T means telegraphic transfer, or simply wire transfer. It's the simplest and easiest payment method to use.


T/T payment in advance is usually used when the sample and small quantity shipments are transported by air. The reason why is that the documents like air waybill, commercial invoice and packing list will be sent to you along with the shipment by the same plane. As soon as the shipment arrives, you can clear the customs and pick up the goods with the documents. As it's acknowledged, T/T payment in advance presents risk to the importer if the supplier is not an honest one.


For us, T/T advance payment is required for some high-value samples (see our samples ordering policy) and small quantity order shipped by air.


To the customers who have long-standing business relationships with us, we send free samples; and for the small quantity order, document against payment is used.


It takes 3-4 days for us to received the wire transfer made from anywhere in the world.


2-Letter of credit


An irrevocable Letter of Credit is also an often used payment method. It is often referred to an L/C. Letters of Credit are formal payment methods that offer a lot of protection to the parties.


Simply put, a letter of credit is a letter written by the importer's bank to the exporter. It verifies that the payment will be guaranteed when the bank is presented with the concrete documents (bill of lading, and freight documents). Most letters of credit are "irrevocable" once the importer has had them sent.


A letter of credit usually includes applicant (you, the importer), beneficiary (our I/E agent), opening bank, negotiating bank, specification and quantity of the goods, amount of money, loading port and destination port, shipment date, the validity date of the L/C, terms and conditions agreed by both the importer and seller, and the documents required by the importers (bill of lading, commercial invoice, packing list, insurance certificate, etc.)


The L/C payment procedure is usually as follows:


a. You (the importer) applies to open the L/C to us (the seller) through a bank who can open the L/C in your country.

b. The opening bank will inform The Bank of China that the L/C has been opened.

c. The Bank of China will inform us that the L/C has been established.

d. We'll check all the terms and conditions listed in the L/C. If all terms and conditions are acceptable, we'll arrange the shipment within the time specified in the L/C.

e. After the goods are loaded onto the ship without any damage, the captain will issue the clean bill of lading to us.

f. We will submit the clean bill of lading and other relevant documents to The Bank of China to gather the payment. Only with clean bill of lading can you claim the ownership of the goods.

g. The Bank of China will send the clean bill of lading and relevant documents to your bank (the opening bank).

h. The opening bank will inform you that all documents are received.

i. You will go to the bank to make the payment to get the clean bill of lading and relevan documents.

j. With all of these documents, you can clear the import Customs and pick up the goods after the goods arrive on the destination sea port.


L/C is used for the larger quantity order shipped by sea.


The typical L/C scenario takes 14-21 days to complete.


3-D/P (document against payment)


The exporter (we) makes shipment and sends the shipping documents to the exporter's bank (the Bank of China) for collection. The Bank of China then sends the shipping documents along with a collection letter to the importer's bank, who then sends a collection notice to the importer. The importer makes payment upon receiving the notice, and only after payment does the importer receive the original shipping documents with which you take the physical possession of the goods.


The major advantage of the use of a cash against documents payment is the low cost, versus using a letter of credit. But, this is offset by the risk that the importer will for some reason reject the documents (or they will not be in order). Since the cargo would already be loaded (to generate the documents), we have little recourse against the importer in cases of non-payment. So, a payment against documents arrangement involves a high level of trust between the exporter and the importer.


To our customers who have long-standing relationships with us, for larger quantity order shipped by sea, we usually make the payment arrangement as 50% made via T/T advance payment and 50% made via D/P to expedite the whole transaction process.


There is no payment method that is perfectly safe to both the importer and supplier at the same time. But, we still have got to do business, right? So, we hold it's crucial to develop a long-term relationship with our customers based on mutual trust.

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